A penny made is 1.7 pennies lost

Coins cost more to mint than they are worth and Congress wants change

WASHINGTON (MarketWatch) -- Who else but the government would shell out almost two cents for a penny?

In fiscal 2007, it cost the U.S. Mint 1.7 cents to make and distribute a one-cent coin, according to an annual audit that cited rising metal prices, while the nickel cost 9.5 cents. To grapple with high costs for metals, Washington is looking at ways to cut spending on money.

"With each new penny and nickel we issue, we also increase the national debt by almost as much as the coin is worth, and these losses are rapidly mounting," Edmund Moy, director of the Mint, told House lawmakers at a hearing this week.

Changing the composition of pennies and nickels could save up to $100 million per year, according to Moy. He added that he supports a proposal in Congress to enable the U.S. Treasury to determine the weight and composition of coins "because it would ultimately result in significant taxpayer savings by providing the department with the flexibility to respond to changing market conditions through an open, fair and deliberative process."

However, he takes issue with a provision that would mandate five years of consecutive losses before materials could be changed.

Pennies are made of copper and zinc, while nickels are made of nickel and copper. Since early 2003, high demand worldwide has driven up prices, with copper rising 440%, nickel up 310% and zinc up 260%, according to Moy. The recently introduced legislation in Congress would allow Treasury to sanction the use of cheaper metals for U.S. coins.

Dean Baker, co-director of the Center for Economic and Policy Research, said there's no reason to spend more making coins than necessary.

"If we could mint something at a lower cost, we might as well do it," he said. "How much do we want to spend to mint our coins?"

Baker added that producing coins that are worth more than their face value could lead to hoarding.

Pennies -- precious or obsolete?

Jay Johnson, a consultant to Collectors Universe Inc.
CLCT, +2.05%
and former director of the Mint, said Tuesday that collectability can be enhanced by coin changes, as long as those changes are within certain limits.

"Collectors appreciate tradition," Johnson testified, adding that they would not like a metallic composition that does not wear well, or does not look or feel like a traditional penny.

He also pointed out that U.S. coins are no strangers to change, with the penny going through incarnations such as the Indian Head and "steelie," a coin of steel with a thin zinc coating minted during World War II.

Some are ready to dump the penny altogether, with high metal costs adding fodder to their push.

"The penny no longer serves a useful function," said Jeff Gore, creator of Retirethepenny.org. "The penny slows down cash transactions because we have to make change."

However, Gore said he does not support nixing nickels, which are needed to make correct change for the quarter.

Mark Weller, executive director of Americans for Common Cents, said the penny benefits consumers.

"The alternative is rounding to the nickel, and that's a loser for consumers who are going to pay more for everything from a gallon of milk to a gallon of gas," Weller said. "So you not only have an overall hit on the economy, but those who can least afford it."

He added that pennies fuel charitable causes, with people willing to toss a few into a bucket.

"The penny may seem small as an individual item," Weller said. "But when you gather them you reach significant sums."

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